For the past year or so, China has been the usual suspect behind currency volatility. Step forward Japan.
Tokyo's unprecedented decision to introduce negative interest rates on Friday may intensify concerns that global central banks are delving into a tit-for-tat currency devaluation fight, strategists warned.
By implementing negative rates and leaving the door open to sustained easing to boost inflation, the Bank of Japan (BOJ) is effectively weakening the yen against the greenback. The currency slipped as much as 2 percent to hit a one-month trough of 121.4 following Friday's shock announcement and more short-term weakness is widely anticipated.
"The yen has been the strongest performing funding currency since the turn of the year but today's news should result in a reversal of that," said BNP Paribas in a Friday note, expecting the currency to trade around 121 per dollar for some time to come.
This has serious implications for China as the world's second-largest economy aims to make the renminbi, or yuan, more market-oriented by basing it on a trade-weighted basket of international currencies, which includes the yen.